"It's often been observed that the first casualty of war is the truth. But that's a lie, too, in its way. The reality is that, for most wars to begin, the truth has to have been sacrificed a long time in advance." L. Neil Smith

02 May 2013

Currency Wars: Chinese Gold Rush and American Pravda

Sometimes there is a juxtaposition of stories that is just too striking.

Here is a piece that appeared today in the People's Daily Online. It presents some interesting information on the buying of gold in China during the most recent fluctuation in price.

As I seem to recall, China holds so many US dollars that if they tried to convert them into gold and silver, they couldn't. Well, not at anything near today's prices. And their bond selling would certainly stress the Fed's Balance Sheet.

Those in the know who were able to position themselves for such a move could make quite a bit of money out of it, especially if they could keep it quiet. But if some major insiders were to demand their metal from the hypothecation schemes of the bullion banks it would create some short term traffic jams and delivery problems. High leverage makes for a tough and often volatile unwind.

One might even see a few bullion banks with major outflows from their bullion storage as servile managers and brokers leak the word, over cocktails and canapés, to favored customers with significant financial deposits at the firm overall. As Jeff Sachs says, that is the way it is these days on Wall St.

As for the second story, the G20 conference on Global Finance in Transition and Reinventing Bretton Woods begins next week. And the discussion of replacements for the US dollar reserve system, which is so near and dear to the Anglo-American banking cartel, are high on the topics to be discussed. The BRICs are growing increasingly unhappy with the financial status quo, and the exorbitant privilege of a single country controlling the world's reserve currency and thereby having the ability to promote their domestic ends with it.

They would like to replace the existing international trade regime with something more broadly based on a basket of currencies and precious metals like gold and silver. How do we know this? Because they have said so. And the dollar mouthpieces will object, pointing to the metals' recent volatility.

As George Orwell once remarked 'we have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men.'

And before one unctuously dismisses the news in the People's Daily as statist messaging, which by the way I am sure it often is, here is an interesting piece on the craven and tarnished performance of the corporate media, Our American Pravda. It is a bit uneven, but an interesting read nonetheless.

When the Anglo-American media does get inexplicably involved in something, other than the real news and the trivial diversions they so enjoy, and even when they are inexplicably silent in the manner of the dog that does not bark, one suspects that the moneyed classes see an opportunity for profit in it, and the public interests be damned. Their designated role is to keep quiet and 'bail-in.'

As the fiatscos of relativistic monetary theory like to say, a currency is all consensus. Money is what we say it is, is worth whatever we say it is, and goes wherever we command it to go. And fiat means never having to say your are wrong, if you have enough power on your side to bend truth to will.

Even if you do not believe that there is a currency war, quite a bit of the rest of the world does -- and they are holding a lot of votes.

Perhaps currency war is a misnomer. At times this appears less like a conventional difference of intentions among nations, and more like the internecine power struggles amongst competing crime families that often do not cleanly divide themselves by political boundaries. So the common person, mark, and pawn is often given to ask, 'is our side on my side?'

What this all means for us is interesting times, and never a dull moment. Change is in the wind.

A "TUSSLE" to determine gold prices has connected two groups of people who could hardly be more different - Wall Street moguls and Chinese housewives, with the latter turning out to have the edge.

According to Voice of China radio program, one of this year's most popular phrases may be "Chinese housewives" - as a major force which reportedly spent 100 billion yuan (US$16 billion) over the past two weeks purchasing 300 tons of gold and thus helping to sustain gold prices at US$1,468 an ounce.

The Chinese gold rush has prevented short selling, where gold is sold and then bought back when prices fall. The practice was seen as a possible bid to shore up the US dollar - gold is often regarded as a means of safeguarding wealth against a weak dollar - and to maintain stable interest rates in the US...

Some critics said the fall in gold prices was a well-planned scheme drawn up by investment bankers to bolster the US economy, as two days before the price slump, Goldman Sachs released a research note saying gold's prospects for the year had eroded and recommending investors to sell short.

Before Goldman Sachs, investment banks including Barclays, Societe Generale and Deutsche also projected gold had ended its 12-year bullish performance. Societe Generale even predicted an outright crash, saying "gold may have had its last hurrah."

On April 13, China National Gold Group, the country's biggest gold producer, slashed the bullion price from 313 yuan per gram to 298.5 yuan per gram, the lowest level in two years.

This triggered the enthusiasm of Chinese shoppers, who swarmed into jewelry shops desperate to get their hands on a bargain. In most Chinese cities, gold bars were selling like hot cakes and some even reported empty inventory during the May Day holiday...

The number of Chinese gold buyers and the money they spent caught out those investment bankers who had bet on prices continuing to fall.

"A large rebound in gold prices is unlikely barring an unexpected sharp turn in the US recovery," analysts at Goldman Sachs had written in its research note.

But to their disappointment, gold prices rose by more than 10 percent yesterday compared with that on April 16...

Madame Le Moderateur

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Need Little - Want Less - Love More

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

"There is a vision to remake the world's economy according to the neo-liberal agenda, and to rule it with an 'iron rod' wielded by the US. It would be under the control, described as benevolent guidance, of an oligarchy of the self-proclaimed wisest and most powerful of the multinational elite. The key goal now is to subdue any effective competition, and to gain the full cooperation of the other major powers. They are testing their model of a confederation of nations under central control in Europe."Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, I hope this allows you to make your own decisions in an informed manner, even if it is from learning by my mistakes, which are many. As a standing policy I never provide individual investment advice to anyone. I will only occasionally disclose my personal positions for purposes of illustration. Understand that my own circumstances could differ greatly from your own, and therefore what is suitable for me may not be suitable for you. My comments are intended to be reflection on general macro financial and economic events and trends.